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The Wealth ofNetworksHow Social Production

Transforms Markets and

Freedom

Yochai Benkler

Yale University Press

New Haven and London


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Copyright � 2006 by Yochai Benkler.

All rights reserved.

Subject to the exception immediately following, this book may not be repro-

duced, in whole or in part, including illustrations, in any form (beyond that copy-

ing permitted by Sections 107 and 108 of the U.S. Copyright Law and except by

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The author has made an online version of the book available under a Creative

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author’s website at http://www.benkler.org.

Printed in the United States of America.

Library of Congress Cataloging-in-Publication Data

Benkler, Yochai.

The wealth of networks : how social production transforms markets and

freedom / Yochai Benkler.

p. cm.

Includes bibliographical references and index.

ISBN-13: 978-0-300-11056-2 (alk. paper)

ISBN-10: 0-300-11056-1 (alk. paper)

1. Information society. 2. Information networks. 3. Computer

networks—Social aspects. 4. Computer networks—Economic aspects.

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HM851.B457 2006

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Chapter 4 The Economics of

Social Production

The increasing salience of nonmarket production in general, andpeer production in particular, raises three puzzles from an econom-ics perspective. First, why do people participate? What is their mo-tivation when they work for or contribute resources to a project forwhich they are not paid or directly rewarded? Second, why now,why here? What, if anything, is special about the digitally networkedenvironment that would lead us to believe that peer production ishere to stay as an important economic phenomenon, as opposed toa fad that will pass as the medium matures and patterns of behaviorsettle toward those more familiar to us from the economy of steel,coal, and temp agencies. Third, is it efficient to have all these peoplesharing their computers and donating their time and creative effort?Moving through the answers to these questions, it becomes clearthat the diverse and complex patterns of behavior observed on theInternet, from Viking ship hobbyists to the developers of the GNU/Linux operating system, are perfectly consistent with much of ourcontemporary understanding of human economic behavior. Weneed to assume no fundamental change in the nature of humanity;


92 The Networked Information Economy

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we need not declare the end of economics as we know it. We merely needto see that the material conditions of production in the networked infor-mation economy have changed in ways that increase the relative salience ofsocial sharing and exchange as a modality of economic production. That is,behaviors and motivation patterns familiar to us from social relations gen-erally continue to cohere in their own patterns. What has changed is thatnow these patterns of behavior have become effective beyond the domainsof building social relations of mutual interest and fulfilling our emotionaland psychological needs of companionship and mutual recognition. Theyhave come to play a substantial role as modes of motivating, informing, andorganizing productive behavior at the very core of the information economy.And it is this increasing role as a modality of information production thatripples through the rest this book. It is the feasibility of producing infor-mation, knowledge, and culture through social, rather than market and pro-prietary relations—through cooperative peer production and coordinate in-dividual action—that creates the opportunities for greater autonomousaction, a more critical culture, a more discursively engaged and better in-formed republic, and perhaps a more equitable global community.

MOTIVATION

Much of economics achieves analytic tractability by adopting a very simplemodel of human motivation. The basic assumption is that all human mo-tivations can be more or less reduced to something like positive and negativeutilities—things people want, and things people want to avoid. These arecapable of being summed, and are usually translatable into a universal me-dium of exchange, like money. Adding more of something people want, likemoney, to any given interaction will, all things considered, make that inter-action more desirable to rational people. While simplistic, this highly trac-table model of human motivation has enabled policy prescriptions that haveproven far more productive than prescriptions that depended on other mod-els of human motivation—such as assuming that benign administrators willbe motivated to serve their people, or that individuals will undertake self-sacrifice for the good of the nation or the commune.

Of course, this simple model underlying much of contemporary econom-ics is wrong. At least it is wrong as a universal description of human moti-vation. If you leave a fifty-dollar check on the table at the end of a dinnerparty at a friend’s house, you do not increase the probability that you will


The Economics of Social Production 93

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be invited again. We live our lives in diverse social frames, and money hasa complex relationship with these—sometimes it adds to the motivation toparticipate, sometimes it detracts from it. While this is probably a trivialobservation outside of the field of economics, it is quite radical within thatanalytic framework. The present generation’s efforts to formalize and engageit began with the Titmuss-Arrow debate of the early 1970s. In a major work,Richard Titmuss compared the U.S. and British blood supply systems. Theformer was largely commercial at the time, organized by a mix of privatefor-profit and nonprofit actors; the latter entirely voluntary and organizedby the National Health Service. Titmuss found that the British system hadhigher-quality blood (as measured by the likelihood of recipients contractinghepatitis from transfusions), less blood waste, and fewer blood shortages athospitals. Titmuss also attacked the U.S. system as inequitable, arguing thatthe rich exploited the poor and desperate by buying their blood. He con-cluded that an altruistic blood procurement system is both more ethical andmore efficient than a market system, and recommended that the market bekept out of blood donation to protect the “right to give.”1 Titmuss’s argu-ment came under immediate attack from economists. Most relevant for ourpurposes here, Kenneth Arrow agreed that the differences in blood qualityindicated that the U.S. blood system was flawed, but rejected Titmuss’scentral theoretical claim that markets reduce donative activity. Arrow re-ported the alternative hypothesis held by “economists typically,” that if somepeople respond to exhortation/moral incentives (donors), while others re-spond to prices and market incentives (sellers), these two groups likely be-have independently—neither responds to the other’s incentives. Thus, thedecision to allow or ban markets should have no effect on donative behavior.Removing a market could, however, remove incentives of the “bad blood”suppliers to sell blood, thereby improving the overall quality of the bloodsupply. Titmuss had not established his hypothesis analytically, Arrow argued,and its proof or refutation would lie in empirical study.2 Theoretical differ-ences aside, the U.S. blood supply system did in fact transition to an all-volunteer system of social donation since the 1970s. In surveys since, blooddonors have reported that they “enjoy helping” others, experienced a senseof moral obligation or responsibility, or exhibited characteristics of recipro-cators after they or their relatives received blood.

A number of scholars, primarily in psychology and economics, have at-tempted to resolve this question both empirically and theoretically. The mostsystematic work within economics is that of Swiss economist Bruno Frey



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and various collaborators, building on the work of psychologist EdwardDeci.3 A simple statement of this model is that individuals have intrinsicand extrinsic motivations. Extrinsic motivations are imposed on individualsfrom the outside. They take the form of either offers of money for, or pricesimposed on, behavior, or threats of punishment or reward from a manageror a judge for complying with, or failing to comply with, specifically pre-scribed behavior. Intrinsic motivations are reasons for action that come fromwithin the person, such as pleasure or personal satisfaction. Extrinsic moti-vations are said to “crowd out” intrinsic motivations because they (a) impairself-determination—that is, people feel pressured by an external force, andtherefore feel overjustified in maintaining their intrinsic motivation ratherthan complying with the will of the source of the extrinsic reward; or (b)impair self-esteem—they cause individuals to feel that their internal moti-vation is rejected, not valued, and as a result, their self-esteem is diminished,causing them to reduce effort. Intuitively, this model relies on there being aculturally contingent notion of what one “ought” to do if one is a well-adjusted human being and member of a decent society. Being offered moneyto do something you know you “ought” to do, and that self-respectingmembers of society usually in fact do, implies that the person offering themoney believes that you are not a well-adjusted human being or an equallyrespectable member of society. This causes the person offered the moneyeither to believe the offerer, and thereby lose self-esteem and reduce effort,or to resent him and resist the offer. A similar causal explanation is formal-ized by Roland Benabou and Jean Tirole, who claim that the person receiv-ing the monetary incentives infers that the person offering the compensationdoes not trust the offeree to do the right thing, or to do it well of their ownaccord. The offeree’s self-confidence and intrinsic motivation to succeed arereduced to the extent that the offeree believes that the offerer—a manageror parent, for example—is better situated to judge the offeree’s abilities.4

More powerful than the theoretical literature is the substantial empiricalliterature—including field and laboratory experiments, econometrics, andsurveys—that has developed since the mid-1990s to test the hypotheses ofthis model of human motivation. Across many different settings, researchershave found substantial evidence that, under some circumstances, addingmoney for an activity previously undertaken without price compensationreduces, rather than increases, the level of activity. The work has coveredcontexts as diverse as the willingness of employees to work more or to sharetheir experience and knowledge with team members, of communities to



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accept locally undesirable land uses, or of parents to pick up children fromday-care centers punctually.5 The results of this empirical literature stronglysuggest that across various domains some displacement or crowding out canbe identified between monetary rewards and nonmonetary motivations. Thisdoes not mean that offering monetary incentives does not increase extrinsicrewards—it does. Where extrinsic rewards dominate, this will increase theactivity rewarded as usually predicted in economics. However, the effect onintrinsic motivation, at least sometimes, operates in the opposite direction.Where intrinsic motivation is an important factor because pricing and con-tracting are difficult to achieve, or because the payment that can be offeredis relatively low, the aggregate effect may be negative. Persuading experiencedemployees to communicate their tacit knowledge to the teams they workwith is a good example of the type of behavior that is very hard to specifyfor efficient pricing, and therefore occurs more effectively through socialmotivations for teamwork than through payments. Negative effects of smallpayments on participation in work that was otherwise volunteer-based arean example of low payments recruiting relatively few people, but makingothers shift their efforts elsewhere and thereby reducing, rather than increas-ing, the total level of volunteering for the job.

The psychology-based alternative to the “more money for an activity willmean more of the activity” assumption implicit in most of these new eco-nomic models is complemented by a sociology-based alternative. This comesfrom one branch of the social capital literature—the branch that relates backto Mark Granovetter’s 1974 book, Getting a Job, and was initiated as a cross-over from sociology to economics by James Coleman.6 This line of literaturerests on the claim that, as Nan Lin puts it, “there are two ultimate (orprimitive) rewards for human beings in a social structure: economic standingand social standing.”7 These rewards are understood as instrumental and, inthis regard, are highly amenable to economics. Both economic and socialaspects represent “standing”—that is, a relational measure expressed in termsof one’s capacity to mobilize resources. Some resources can be mobilized bymoney. Social relations can mobilize others. For a wide range of reasons—institutional, cultural, and possibly technological—some resources are morereadily capable of being mobilized by social relations than by money. If youwant to get your nephew a job at a law firm in the United States today, afriendly relationship with the firm’s hiring partner is more likely to help thanpassing on an envelope full of cash. If this theory of social capital is correct,then sometimes you should be willing to trade off financial rewards for social



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capital. Critically, the two are not fungible or cumulative. A hiring partnerpaid in an economy where monetary bribes for job interviews are standarddoes not acquire a social obligation. That same hiring partner in that sameculture, who is also a friend and therefore forgoes payment, however, prob-ably does acquire a social obligation, tenable for a similar social situation inthe future. The magnitude of the social debt, however, may now be smaller.It is likely measured by the amount of money saved from not having to paythe price, not by the value of getting the nephew a job, as it would likelybe in an economy where jobs cannot be had for bribes. There are thingsand behaviors, then, that simply cannot be commodified for marketexchange, like friendship. Any effort to mix the two, to pay for one’s friend-ship, would render it something completely different—perhaps a psycho-analysis session in our culture. There are things that, even if commodified,can still be used for social exchange, but the meaning of the social exchangewould be diminished. One thinks of borrowing eggs from a neighbor, orlending a hand to friends who are moving their furniture to a new apart-ment. And there are things that, even when commodified, continue to beavailable for social exchange with its full force. Consider gamete donationsas an example in contemporary American culture. It is important to see,though, that there is nothing intrinsic about any given “thing” or behaviorthat makes it fall into one or another of these categories. The categories areculturally contingent and cross-culturally diverse. What matters for our pur-poses here, though, is only the realization that for any given culture, therewill be some acts that a person would prefer to perform not for money, butfor social standing, recognition, and probably, ultimately, instrumental valueobtainable only if that person has performed the action through a social,rather than a market, transaction.

It is not necessary to pin down precisely the correct or most completetheory of motivation, or the full extent and dimensions of crowding outnonmarket rewards by the introduction or use of market rewards. All thatis required to outline the framework for analysis is recognition that there issome form of social and psychological motivation that is neither fungiblewith money nor simply cumulative with it. Transacting within the pricesystem may either increase or decrease the social-psychological rewards (bethey intrinsic or extrinsic, functional or symbolic). The intuition is simple.As I have already said, leaving a fifty-dollar check on the table after one hasfinished a pleasant dinner at a friend’s house would not increase the host’s



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social and psychological gains from the evening. Most likely, it would di-minish them sufficiently that one would never again be invited. A bottle ofwine or a bouquet of flowers would, to the contrary, improve the socialgains. And if dinner is not intuitively obvious, think of sex. The point issimple. Money-oriented motivations are different from socially oriented mo-tivations. Sometimes they align. Sometimes they collide. Which of the twowill be the case is historically and culturally contingent. The presence ofmoney in sports or entertainment reduced the social psychological gains fromperformance in late-nineteenth-century Victorian England, at least for mem-bers of the middle and upper classes. This is reflected in the long-standinginsistence on the “amateur” status of the Olympics, or the status of “actors”in the Victorian society. This has changed dramatically more than a centurylater, where athletes’ and popular entertainers’ social standing is practicallymeasured in the millions of dollars their performances can command.

The relative relationships of money and social-psychological rewards are,then, dependent on culture and context. Similar actions may have differentmeanings in different social or cultural contexts. Consider three lawyers con-templating whether to write a paper presenting their opinion—one is apracticing attorney, the second is a judge, and the third is an academic. Forthe first, money and honor are often, though not always, positively corre-lated. Being able to command a very high hourly fee for writing the re-quested paper is a mode of expressing one’s standing in the profession, aswell as a means of putting caviar on the table. Yet, there are modes ofacquiring esteem—like writing the paper as a report for a bar committee—that are not improved by the presence of money, and are in fact underminedby it. This latter effect is sharpest for the judge. If a judge is approachedwith an offer of money for writing an opinion, not only is this not a markof honor, it is a subversion of the social role and would render corrupt thewriting of the opinion. For the judge, the intrinsic “rewards” for writing theopinion when matched by a payment for the product would be guilt andshame, and the offer therefore an expression of disrespect. Finally, if thesame paper is requested of the academic, the presence of money is locatedsomewhere in between the judge and the practitioner. To a high degree, likethe judge, the academic who writes for money is rendered suspect in hercommunity of scholarship. A paper clearly funded by a party, whose resultssupport the party’s regulatory or litigation position, is practically worthlessas an academic work. In a mirror image of the practitioner, however, there



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are some forms of money that add to and reinforce an academic’s socialpsychological rewards—peer-reviewed grants and prizes most prominentamong them.

Moreover, individuals are not monolithic agents. While it is possible toposit idealized avaricious money-grubbers, altruistic saints, or social climbers,the reality of most people is a composite of these all, and one that is notlike any of them. Clearly, some people are more focused on making money,and others are more generous; some more driven by social standing andesteem, others by a psychological sense of well-being. The for-profit andnonprofit systems probably draw people with different tastes for these desid-erata. Academic science and commercial science also probably draw scientistswith similar training but different tastes for types of rewards. However, well-adjusted, healthy individuals are rarely monolithic in their requirements. Wewould normally think of someone who chose to ignore and betray friendsand family to obtain either more money or greater social recognition as afetishist of some form or another. We spend some of our time makingmoney, some of our time enjoying it hedonically; some of our time beingwith and helping family, friends, and neighbors; some of our time creativelyexpressing ourselves, exploring who we are and what we would like to be-come. Some of us, because of economic conditions we occupy, or becauseof our tastes, spend very large amounts of time trying to make money—whether to become rich or, more commonly, just to make ends meet. Othersspend more time volunteering, chatting, or writing.

For all of us, there comes a time on any given day, week, and month,every year and in different degrees over our lifetimes, when we choose toact in some way that is oriented toward fulfilling our social and psychologicalneeds, not our market-exchangeable needs. It is that part of our lives andour motivational structure that social production taps, and on which itthrives. There is nothing mysterious about this. It is evident to any of uswho rush home to our family or to a restaurant or bar with friends at theend of a workday, rather than staying on for another hour of overtime orto increase our billable hours; or at least regret it when we cannot. It isevident to any of us who has ever brought a cup of tea to a sick friend orrelative, or received one; to anyone who has lent a hand moving a friend’sbelongings; played a game; told a joke, or enjoyed one told by a friend.What needs to be understood now, however, is under what conditions thesemany and diverse social actions can turn into an important modality ofeconomic production. When can all these acts, distinct from our desire for



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money and motivated by social and psychological needs, be mobilized, di-rected, and made effective in ways that we recognize as economically valu-able?

SOCIAL PRODUCTION: FEASIBILITY

CONDITIONS AND ORGANIZATIONAL FORM

The core technologically contingent fact that enables social relations to be-come a salient modality of production in the networked information econ-omy is that all the inputs necessary to effective productive activity are underthe control of individual users. Human creativity, wisdom, and life experi-ence are all possessed uniquely by individuals. The computer processors, datastorage devices, and communications capacity necessary to make new mean-ingful conversational moves from the existing universe of information andstimuli, and to render and communicate them to others near and far arealso under the control of these same individual users—at least in the ad-vanced economies and in some portions of the population of developingeconomies. This does not mean that all the physical capital necessary toprocess, store, and communicate information is under individual user con-trol. That is not necessary. It is, rather, that the majority of individuals inthese societies have the threshold level of material capacity required to ex-plore the information environment they occupy, to take from it, and tomake their own contributions to it.

There is nothing about computation or communication that naturally ornecessarily enables this fact. It is a felicitous happenstance of the fabricationtechnology of computing machines in the last quarter of the twentieth cen-tury, and, it seems, in the reasonably foreseeable future. It is cheaper to buildfreestanding computers that enable their owners to use a wide and dynam-ically changing range of information applications, and that are cheap enoughthat each machine is owned by an individual user or household, than it isto build massive supercomputers with incredibly high-speed communicationsto yet cheaper simple terminals, and to sell information services to individ-uals on an on-demand or standardized package model. Natural or contin-gent, it is nevertheless a fact of the industrial base of the networked infor-mation economy that individual users—susceptible as they are to acting ondiverse motivations, in diverse relationships, some market-based, some so-cial—possess and control the physical capital necessary to make effective thehuman capacities they uniquely and individually possess.



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Now, having the core inputs of information production ubiquitously dis-tributed in society is a core enabling fact, but it alone cannot assure thatsocial production will become economically significant. Children and teen-agers, retirees, and very rich individuals can spend most of their lives so-cializing or volunteering; most other people cannot. While creative capacityand judgment are universally distributed in a population, available time andattention are not, and human creative capacity cannot be fully dedicated tononmarket, nonproprietary production all the time. Someone needs to workfor money, at least some of the time, to pay the rent and put food on thetable. Personal computers too are only used for earnings-generating activitiessome of the time. In both these resources, there remain large quantities ofexcess capacity—time and interest in human beings; processing, storage, andcommunications capacity in computers—available to be used for activitieswhose rewards are not monetary or monetizable, directly or indirectly.

For this excess capacity to be harnessed and become effective, the infor-mation production process must effectively integrate widely dispersed con-tributions, from many individual human beings and machines. These con-tributions are diverse in their quality, quantity, and focus, in their timingand geographic location. The great success of the Internet generally, andpeer-production processes in particular, has been the adoption of technicaland organizational architectures that have allowed them to pool such diverseefforts effectively. The core characteristics underlying the success of theseenterprises are their modularity and their capacity to integrate many fine-grained contributions.

“Modularity” is a property of a project that describes the extent to whichit can be broken down into smaller components, or modules, that can beindependently produced before they are assembled into a whole. If modulesare independent, individual contributors can choose what and when to con-tribute independently of each other. This maximizes their autonomy andflexibility to define the nature, extent, and timing of their participation inthe project. Breaking up the maps of Mars involved in the clickworkersproject (described in chapter 3) and rendering them in small segments witha simple marking tool is a way of modularizing the task of mapping craters.In the SETI@home project (see chapter 3), the task of scanning radio as-tronomy signals is broken down into millions of little computations as away of modularizing the calculations involved.

“Granularity” refers to the size of the modules, in terms of the time andeffort that an individual must invest in producing them. The five minutes



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required for moderating a comment on Slashdot, or for metamoderating amoderator, is more fine-grained than the hours necessary to participate inwriting a bug fix in an open-source project. More people can participate inthe former than in the latter, independent of the differences in the knowledgerequired for participation. The number of people who can, in principle,participate in a project is therefore inversely related to the size of the smallest-scale contribution necessary to produce a usable module. The granularity ofthe modules therefore sets the smallest possible individual investment nec-essary to participate in a project. If this investment is sufficiently low, then“incentives” for producing that component of a modular project can be oftrivial magnitude. Most importantly for our purposes of understanding therising role of nonmarket production, the time can be drawn from the excesstime we normally dedicate to having fun and participating in social inter-actions. If the finest-grained contributions are relatively large and wouldrequire a large investment of time and effort, the universe of potential con-tributors decreases. A successful large-scale peer-production project musttherefore have a predominate portion of its modules be relatively fine-grained.

Perhaps the clearest example of how large-grained modules can make pro-jects falter is the condition, as of the middle of 2005, of efforts to peerproduce open textbooks. The largest such effort is Wikibooks, a site asso-ciated with Wikipedia, which has not taken off as did its famous parentproject. Very few texts there have reached maturity to the extent that theycould be usable as a partial textbook, and those few that have were largelywritten by one individual with minor contributions by others. Similarly, anambitious initiative launched in California in 2004 still had not gone farbeyond an impassioned plea for help by mid-2005. The project that seemsmost successful as of 2005 was a South African project, Free High SchoolScience Texts (FHSST), founded by a physics graduate student, MarkHorner. As of this writing, that three-year-old project had more or less com-pleted a physics text, and was about halfway through chemistry and math-ematics textbooks. The whole FHSST project involves a substantially moremanaged approach than is common in peer-production efforts, with a coregroup of dedicated graduate student administrators recruiting contributors,assigning tasks, and integrating the contributions. Horner suggests that thebasic limiting factor is that in order to write a high school textbook, theoutput must comply with state-imposed guidelines for content and form.To achieve these requirements, the various modules must cohere to a degree



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much larger than necessary in a project like Wikipedia, which can endurehigh diversity in style and development without losing its utility. As a result,the individual contributions have been kept at a high level of abstraction—an idea or principle explained at a time. The minimal time commitmentrequired of each contributor is therefore large, and has led many of thosewho volunteered initially to not complete their contributions. In this case,the guideline requirements constrained the project’s granularity, and therebyimpeded its ability to grow and capture the necessary thousands of small-grained contributions. With orders of magnitude fewer contributors, eachmust be much more highly motivated and available than is necessary inWikipedia, Slashdot, and similar successful projects.

It is not necessary, however, that each and every chunk or module be finegrained. Free software projects in particular have shown us that successfulpeer-production projects may also be structured, technically and culturally,in ways that make it possible for different individuals to contribute vastlydifferent levels of effort commensurate with their ability, motivation, andavailability. The large free software projects might integrate thousands ofpeople who are acting primarily for social psychological reasons—because itis fun or cool; a few hundred young programmers aiming to make a namefor themselves so as to become employable; and dozens of programmers whoare paid to write free software by firms that follow one of the nonproprietarystrategies described in chapter 2. IBM and Red Hat are the quintessentialexamples of firms that contribute paid employee time to peer-productionprojects in this form. This form of link between a commercial firm and apeer production community is by no means necessary for a peer-productionprocess to succeed; it does, however, provide one constructive interface be-tween market- and nonmarket-motivated behavior, through which actionson the two types of motivation can reinforce, rather than undermine, eachother.

The characteristics of planned modularization of a problem are highlyvisible and explicit in some peer-production projects—the distributed com-puting projects like SETI@home are particularly good examples of this.However, if we were to step back and look at the entire phenomenon ofWeb-based publication from a bird’s-eye view, we would see that the archi-tecture of the World Wide Web, in particular the persistence of personalWeb pages and blogs and their self-contained, technical independence ofeach other, give the Web as a whole the characteristics of modularity andvariable but fine-grained granularity. Imagine that you were trying to evaluate



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how, if at all, the Web is performing the task of media watchdog. Considerone example, which I return to in chapter 7: The Memory Hole, a Web sitecreated and maintained by Russ Kick, a freelance author and editor. Kickspent some number of hours preparing and filing a Freedom of InformationAct request with the Defense Department, seeking photographs of coffinsof U.S. military personnel killed in Iraq. He was able to do so over someperiod, not having to rely on “getting the scoop” to earn his dinner. At thesame time, tens of thousands of other individual Web publishers and blog-gers were similarly spending their time hunting down stories that movedthem, or that they happened to stumble across in their own daily lives. WhenKick eventually got the photographs, he could upload them onto his Website, where they were immediately available for anyone to see. Because eachcontribution like Kick’s can be independently created and stored, becauseno single permission point or failure point is present in the architecture ofthe Web—it is merely a way of conveniently labeling documents storedindependently by many people who are connected to the Internet and useHTML (hypertext markup language) and HTTP (hypertext transfer proto-col)—as an “information service,” it is highly modular and diversely granular.Each independent contribution comprises as large or small an investment asits owner-operator chooses to make. Together, they form a vast almanac,trivia trove, and news and commentary facility, to name but a few, producedby millions of people at their leisure—whenever they can or want to, aboutwhatever they want.

The independence of Web sites is what marks their major difference frommore organized peer-production processes, where contributions are markednot by their independence but by their interdependence. The Web as awhole requires no formal structure of cooperation. As an “information good”or medium, it emerges as a pattern out of coordinate coexistence of millionsof entirely independent acts. All it requires is a pattern recognition utilitysuperimposed over the outputs of these acts—a search engine or directory.Peer-production processes, to the contrary, do generally require some sub-stantive cooperation among users. A single rating of an individual commenton Slashdot does not by itself moderate the comment up or down, neitherdoes an individual marking of a crater. Spotting a bug in free software,proposing a fix, reviewing the proposed fix, and integrating it into the soft-ware are interdependent acts that require a level of cooperation. This neces-sity for cooperation requires peer-production processes to adopt more en-gaged strategies for assuring that everyone who participates is doing so in



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good faith, competently, and in ways that do not undermine the whole, andweeding out those would-be participants who are not.

Cooperation in peer-production processes is usually maintained by somecombination of technical architecture, social norms, legal rules, and a tech-nically backed hierarchy that is validated by social norms. Wikipedia is thestrongest example of a discourse-centric model of cooperation based on socialnorms. However, even Wikipedia includes, ultimately, a small number ofpeople with system administrator privileges who can eliminate accounts orblock users in the event that someone is being genuinely obstructionist. Thistechnical fallback, however, appears only after substantial play has been givento self-policing by participants, and to informal and quasi-formal community-based dispute resolution mechanisms. Slashdot, by contrast, provides a strongmodel of a sophisticated technical system intended to assure that no one can“defect” from the cooperative enterprise of commenting and moderatingcomments. It limits behavior enabled by the system to avoid destructivebehavior before it happens, rather than policing it after the fact. The Slashcode does this by technically limiting the power any given person has tomoderate anyone else up or down, and by making every moderator thesubject of a peer review system whose judgments are enforced technically—that is, when any given user is described by a sufficiently large number ofother users as unfair, that user automatically loses the technical ability tomoderate the comments of others. The system itself is a free software project,licensed under the GPL (General Public License)—which is itself the quin-tessential example of how law is used to prevent some types of defectionfrom the common enterprise of peer production of software. The particulartype of defection that the GPL protects against is appropriation of the jointproduct by any single individual or firm, the risk of which would make itless attractive for anyone to contribute to the project to begin with. TheGPL assures that, as a legal matter, no one who contributes to a free softwareproject need worry that some other contributor will take the project andmake it exclusively their own. The ultimate quality judgments regardingwhat is incorporated into the “formal” releases of free software projects pro-vide the clearest example of the extent to which a meritocratic hierarchy canbe used to integrate diverse contributions into a finished single product. Inthe case of the Linux kernel development project (see chapter 3), it wasalways within the power of Linus Torvalds, who initiated the project, todecide which contributions should be included in a new release, and whichshould not. But it is a funny sort of hierarchy, whose quirkiness Steve Weber



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well explicates.8 Torvalds’s authority is persuasive, not legal or technical, andcertainly not determinative. He can do nothing except persuade others toprevent them from developing anything they want and add it to their kernel,or to distribute that alternative version of the kernel. There is nothing hecan do to prevent the entire community of users, or some subsection of it,from rejecting his judgment about what ought to be included in the kernel.Anyone is legally free to do as they please. So these projects are based on ahierarchy of meritocratic respect, on social norms, and, to a great extent, onthe mutual recognition by most players in this game that it is to everybody’sadvantage to have someone overlay a peer review system with some leader-ship.

In combination then, three characteristics make possible the emergenceof information production that is not based on exclusive proprietary claims,not aimed toward sales in a market for either motivation or information,and not organized around property and contract claims to form firms ormarket exchanges. First, the physical machinery necessary to participate ininformation and cultural production is almost universally distributed in thepopulation of the advanced economies. Certainly, personal computers ascapital goods are under the control of numbers of individuals that are ordersof magnitude larger than the number of parties controlling the use of mass-production-capable printing presses, broadcast transmitters, satellites, or ca-ble systems, record manufacturing and distribution chains, and film studiosand distribution systems. This means that the physical machinery can beput in service and deployed in response to any one of the diverse motivationsindividual human beings experience. They need not be deployed in orderto maximize returns on the financial capital, because financial capital neednot be mobilized to acquire and put in service any of the large capital goodstypical of the industrial information economy. Second, the primary raw ma-terials in the information economy, unlike the industrial economy, are publicgoods—existing information, knowledge, and culture. Their actual marginalsocial cost is zero. Unless regulatory policy makes them purposefully expen-sive in order to sustain the proprietary business models, acquiring raw ma-terials also requires no financial capital outlay. Again, this means that theseraw materials can be deployed for any human motivation. They need notmaximize financial returns. Third, the technical architectures, organizationalmodels, and social dynamics of information production and exchange onthe Internet have developed so that they allow us to structure the solutionto problems—in particular to information production problems—in ways



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that are highly modular. This allows many diversely motivated people to actfor a wide range of reasons that, in combination, cohere into new usefulinformation, knowledge, and cultural goods. These architectures and orga-nizational models allow both independent creation that coexists and coheresinto usable patterns, and interdependent cooperative enterprises in the formof peer-production processes.

Together, these three characteristics suggest that the patterns of social pro-duction of information that we are observing in the digitally networkedenvironment are not a fad. They are, rather, a sustainable pattern of humanproduction given the characteristics of the networked information economy.The diversity of human motivation is nothing new. We now have a sub-stantial literature documenting its importance in free and open-source soft-ware development projects, from Josh Lerner and Jean Tirole, Rishab Ghosh,Eric Von Hippel and Karim Lakhani, and others. Neither is the public goodsnature of information new. What is new are the technological conditionsthat allow these facts to provide the ingredients of a much larger role in thenetworked information economy for nonmarket, nonproprietary productionto emerge. As long as capitalization and ownership of the physical capitalbase of this economy remain widely distributed and as long as regulatorypolicy does not make information inputs artificially expensive, individualswill be able to deploy their own creativity, wisdom, conversational capacities,and connected computers, both independently and in loose interdependentcooperation with others, to create a substantial portion of the informationenvironment we occupy. Moreover, we will be able to do so for whateverreason we choose—through markets or firms to feed and clothe ourselves,or through social relations and open communication with others, to giveour lives meaning and context.

TRANSACTION COSTS AND EFFICIENCY

For purposes of analyzing the political values that are the concern of mostof this book, all that is necessary is that we accept that peer production inparticular, and nonmarket information production and exchange in general,are sustainable in the networked information economy. Most of the remain-der of the book seeks to evaluate why, and to what extent, the presence ofa substantial nonmarket, commons-based sector in the information produc-tion system is desirable from the perspective of various aspects of freedomand justice. Whether this sector is “efficient” within the meaning of the



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word in welfare economics is beside the point to most of these considera-tions. Even a strong commitment to a pragmatic political theory, one thataccepts and incorporates into its consideration the limits imposed by materialand economic reality, need not aim for “efficient” policy in the welfare sense.It is sufficient that the policy is economically and socially sustainable on itsown bottom—in other words, that it does not require constant subsidizationat the expense of some other area excluded from the analysis. It is nonethelessworthwhile spending a few pages explaining why, and under what conditions,commons-based peer production, and social production more generally, arenot only sustainable but actually efficient ways of organizing informationproduction.

The efficient allocation of two scarce resources and one public good areat stake in the choice between social production—whether it is peer pro-duction or independent nonmarket production—and market-based produc-tion. Because most of the outputs of these processes are nonrival goods—information, knowledge, and culture—the fact that the social productionsystem releases them freely, without extracting a price for using them, meansthat it would, all other things being equal, be more efficient for informationto be produced on a nonproprietary social model, rather than on a propri-etary market model. Indeed, all other things need not even be equal for thisto hold. It is enough that the net value of the information produced bycommons-based social production processes and released freely for anyoneto use as they please is no less than the total value of information producedthrough property-based systems minus the deadweight loss caused by theabove-marginal-cost pricing practices that are the intended result of the in-tellectual property system.

The two scarce resources are: first, human creativity, time, and attention;and second, the computation and communications resources used in infor-mation production and exchange. In both cases, the primary reason tochoose among proprietary and nonproprietary strategies, between market-based systems—be they direct market exchange or firm-based hierarchicalproduction—and social systems, are the comparative transaction costs ofeach, and the extent to which these transaction costs either outweigh thebenefits of working through each system, or cause the system to distort theinformation it generates so as to systematically misallocate resources.

The first thing to recognize is that markets, firms, and social relations arethree distinct transactional frameworks. Imagine that I am sitting in a roomand need paper for my printer. I could (a) order paper from a store; (b) call



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the storeroom, if I am in a firm or organization that has one, and ask theclerk to deliver the paper I need; or (c) walk over to a neighbor and borrowsome paper. Choice (a) describes the market transactional framework. Thestore knows I need paper immediately because I am willing to pay for itnow. Alternative (b) is an example of the firm as a transactional framework.The paper is in the storeroom because someone in the organization plannedthat someone else would need paper today, with some probability, and or-dered enough to fill that expected need. The clerk in the storeroom gives itto me because that is his job; again, defined by someone who planned tohave someone available to deliver paper when someone else in the properchannels of authority says that she needs it. Comparing and improving theefficiency of (a) and (b), respectively, has been a central project intransaction-costs organization theory. We might compare, for example, thecosts of taking my call, verifying the credit card information, and sending adelivery truck for my one batch of paper, to the costs of someone planningfor the average needs of a group of people like me, who occasionally runout of paper, and stocking a storeroom with enough paper and a clerk tofill our needs in a timely manner. However, notice that (c) is also an alter-native transactional framework. I could, rather than incurring the costs oftransacting through the market with the local store or of building a firmwith sufficient lines of authority to stock and manage the storeroom, popover to my neighbor and ask for some paper. This would make sense evenwithin an existing firm when, for example, I need two or three pages im-mediately and do not want to wait for the storeroom clerk to do his rounds,or more generally, if I am working at home and the costs of creating “afirm,” stocking a storeroom, and paying a clerk are too high for my neighborsand me. Instead, we develop a set of neighborly social relations, rather thana firm-based organization, to deal with shortfalls during periods when itwould be too costly to assure a steady flow of paper from the market—forexample, late in the evening, on a weekend, or in a sparsely populated area.

The point is not, of course, to reduce all social relations and humandecency to a transaction-costs theory. Too many such straight planks havealready been cut from the crooked timber of humanity to make that exerciseuseful or enlightening. The point is that most of economics internally hasbeen ignoring the social transactional framework as an alternative whoserelative efficiency can be accounted for and considered in much the sameway as the relative cost advantages of simple markets when compared to thehierarchical organizations that typify much of our economic activity—firms.



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A market transaction, in order to be efficient, must be clearly demarcatedas to what it includes, so that it can be priced efficiently. That price mustthen be paid in equally crisply delineated currency. Even if a transactioninitially may be declared to involve sale of “an amount reasonably requiredto produce the required output,” for a “customary” price, at some pointwhat was provided and what is owed must be crystallized and fixed for aformal exchange. The crispness is a functional requirement of the price sys-tem. It derives from the precision and formality of the medium ofexchange—currency—and the ambition to provide refined representationsof the comparative value of marginal decisions through denomination in anexchange medium that represents these incremental value differences. Simi-larly, managerial hierarchies require a crisp definition of who should be doingwhat, when, and how, in order to permit the planning and coordinationprocess to be effective.

Social exchange, on the other hand, does not require the same degree ofcrispness at the margin. As Maurice Godelier put it in The Enigma of theGift, “the mark of the gift between close friends and relatives . . . is not theabsence of obligations, it is the absence of ‘calculation.’ ”9 There are, obvi-ously, elaborate and formally ritualistic systems of social exchange, in bothancient societies and modern. There are common-property regimes thatmonitor and record calls on the common pool very crisply. However, inmany of the common-property regimes, one finds mechanisms of boundingor fairly allocating access to the common pool that more coarsely delineatethe entitlements, behaviors, and consequences than is necessary for a pro-prietary system. In modern market society, where we have money as a formalmedium of precise exchange, and where social relations are more fluid thanin traditional societies, social exchange certainly occurs as a fuzzier medium.Across many cultures, generosity is understood as imposing a debt of obli-gation; but none of the precise amount of value given, the precise nature ofthe debt to be repaid, or the date of repayment need necessarily be specified.Actions enter into a cloud of goodwill or membership, out of which eachagent can understand him- or herself as being entitled to a certain flow ofdependencies or benefits in exchange for continued cooperative behavior.This may be an ongoing relationship between two people, a small group likea family or group of friends, and up to a general level of generosity amongstrangers that makes for a decent society. The point is that social exchangedoes not require defining, for example, “I will lend you my car and helpyou move these five boxes on Monday, and in exchange you will feed my



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fish next July,” in the same way that the following would: “I will move fiveboxes on Tuesday for $100, six boxes for $120.” This does not mean thatsocial systems are cost free—far from it. They require tremendous invest-ment, acculturation, and maintenance. This is true in this case every bit asmuch as it is true for markets or states. Once functional, however, socialexchanges require less information crispness at the margin.

Both social and market exchange systems require large fixed costs—thesetting up of legal institutions and enforcement systems for markets, andcreating social networks, norms, and institutions for the social exchange.Once these initial costs have been invested, however, market transactionssystematically require a greater degree of precise information about the con-tent of actions, goods, and obligations, and more precision of monitoringand enforcement on a per-transaction basis than do social exchange systems.

This difference between markets and hierarchical organizations, on theone hand, and peer-production processes based on social relations, on theother, is particularly acute in the context of human creative labor—one ofthe central scarce resources that these systems must allocate in the networkedinformation economy. The levels and focus of individual effort are notori-ously hard to specify for pricing or managerial commands, considering allaspects of individual effort and ability—talent, motivation, workload, andfocus—as they change in small increments over the span of an individual’sfull day, let alone months. What we see instead is codification of efforttypes—a garbage collector, a law professor—that are priced more or lessfinely. However, we only need to look at the relative homogeneity of lawfirm starting salaries as compared to the high variability of individual abilityand motivation levels of graduating law students to realize that pricing ofindividual effort can be quite crude. Similarly, these attributes are also dif-ficult to monitor and verify over time, though perhaps not quite as difficultas predicting them ex ante. Pricing therefore continues to be a function ofrelatively crude information about the actual variability among people. Moreimportantly, as aspects of performance that are harder to fully specify inadvance or monitor—like creativity over time given the occurrence of newopportunities to be creative, or implicit know-how—become a more signif-icant aspect of what is valuable about an individual’s contribution, marketmechanisms become more and more costly to maintain efficiently, and, as apractical matter, simply lose a lot of information.

People have different innate capabilities; personal, social, and educationalhistories; emotional frameworks; and ongoing lived experiences, which make



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for immensely diverse associations with, idiosyncratic insights into, and di-vergent utilization of existing information and cultural inputs at differenttimes and in different contexts. Human creativity is therefore very difficultto standardize and specify in the contracts necessary for either market-clearedor hierarchically organized production. As the weight of human intellectualeffort increases in the overall mix of inputs into a given production process,an organization model that does not require contractual specification of theindividual effort required to participate in a collective enterprise, and whichallows individuals to self-identify for tasks, will be better at gathering andutilizing information about who should be doing what than a system thatdoes require such specification. Some firms try to solve this problem byutilizing market- and social-relations-oriented hybrids, like incentivecompensation schemes and employee-of-the-month–type social motivationalframeworks. These may be able to improve on firm-only or market-onlyapproaches. It is unclear, though, how well they can overcome the coredifficulty: that is, that both markets and firm hierarchies require significantspecification of the object of organization and pricing—in this case, humanintellectual input. The point here is qualitative. It is not only, or even pri-marily, that more people can participate in production in a commons-basedeffort. It is that the widely distributed model of information production willbetter identify the best person to produce a specific component of a project,considering all abilities and availability to work on the specific module withina specific time frame. With enough uncertainty as to the value of variousproductive activities, and enough variability in the quality of both infor-mation inputs and human creative talent vis-a-vis any set of productionopportunities, freedom of action for individuals coupled with continuouscommunications among the pool of potential producers and consumers cangenerate better information about the most valuable productive actions, andthe best human inputs available to engage in these actions at a given time.Markets and firm incentive schemes are aimed at producing precisely thisform of self-identification. However, the rigidities associated with collectingand comprehending bids from individuals through these systems (that is,transaction costs) limit the efficacy of self-identification by comparison to asystem in which, once an individual self-identifies for a task, he or she canthen undertake it without permission, contract, or instruction from another.The emergence of networked organizations (described and analyzed in thework of Charles Sabel and others) suggests that firms are in fact trying toovercome these limitations by developing parallels to the freedom to learn,



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innovate, and act on these innovations that is intrinsic to peer-productionprocesses by loosening the managerial bonds, locating more of the concep-tion and execution of problem solving away from the managerial core of thefirm, and implementing these through social, as well as monetary, motiva-tions. However, the need to assure that the value created is captured withinthe organization limits the extent to which these strategies can be imple-mented within a single enterprise, as opposed to their implementation in anopen process of social production. This effect, in turn, is in some sectorsattenuated through the use of what Walter Powell and others have describedas learning networks. Engineers and scientists often create frameworks thatallow them to step out of their organizational affiliations, through confer-ences or workshops. By reproducing the social production characteristics ofacademic exchange, they overcome some of the information loss caused bythe boundary of the firm. While these organizational strategies attenuate theproblem, they also underscore the degree to which it is widespread andunderstood by organizations as such. The fact that the direction of thesolutions business organizations choose tends to shift elements of the pro-duction process away from market- or firm-based models and toward net-worked social production models is revealing. Now, the self-identificationthat is central to the relative information efficiency of peer production is notalways perfect. Some mechanisms used by firms and markets to codify effortlevels and abilities—like formal credentials—are the result of experience withsubstantial errors or misstatements by individuals of their capacities. To suc-ceed, therefore, peer-production systems must also incorporate mechanismsfor smoothing out incorrect self-assessments—as peer review does in tradi-tional academic research or in the major sites like Wikipedia or Slashdot, oras redundancy and statistical averaging do in the case of NASA clickworkers.The prevalence of misperceptions that individual contributors have abouttheir own ability and the cost of eliminating such errors will be part of thetransaction costs associated with this form of organization. They parallelquality control problems faced by firms and markets.

The lack of crisp specification of who is giving what to whom, and inexchange for what, also bears on the comparative transaction costs associatedwith the allocation of the second major type of scarce resource in the net-worked information economy: the physical resources that make up thenetworked information environment—communications, computation, andstorage capacity. It is important to note, however, that these are very differentfrom creativity and information as inputs: they are private goods, not a



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public good like information, and they are standardized goods with well-specified capacities, not heterogeneous and highly uncertain attributes likehuman creativity at a given moment and context. Their outputs, unlikeinformation, are not public goods. The reasons that they are nonethelesssubject to efficient sharing in the networked environment therefore requirea different economic explanation. However, the sharing of these materialresources, like the sharing of human creativity, insight, and attention, none-theless relies on both the comparative transaction costs of markets and socialrelations and the diversity of human motivation.

Personal computers, wireless transceivers, and Internet connections are“shareable goods.” The basic intuition behind the concept of shareable goodsis simple. There are goods that are “lumpy”: given a state of technology,they can only be produced in certain discrete bundles that offer discontin-uous amounts of functionality or capacity. In order to have any ability torun a computation, for example, a consumer must buy a computer processor.These, in turn, only come in discrete units with a certain speed or capacity.One could easily imagine a world where computers are very large and theirowners sell computation capacity to consumers “on demand,” whenever theyneeded to run an application. That is basically the way the mainframe worldof the 1960s and 1970s worked. However, the economics of microchip fab-rication and of network connections over the past thirty years, followed bystorage technology, have changed that. For most functions that users need,the price-performance trade-off favors stand-alone, general-purpose personalcomputers, owned by individuals and capable of running locally most ap-plications users want, over remote facilities capable of selling on-demandcomputation and storage. So computation and storage today come in dis-crete, lumpy units. You can decide to buy a faster or slower chip, or a largeror smaller hard drive, but once you buy them, you have the capacity ofthese machines at your disposal, whether you need it or not.

Lumpy goods can, in turn, be fine-, medium-, or large-grained. A large-grained good is one that is so expensive it can only be used by aggregatingdemand for it. Industrial capital equipment, like a steam engine, is of thistype. Fine-grained goods are of a granularity that allows consumers to buyprecisely as much of the goods needed for the amount of capacity theyrequire. Medium-grained goods are small enough for an individual to justifybuying for her own use, given their price and her willingness and ability topay for the functionality she plans to use. A personal computer is a medium-grained lumpy good in the advanced economies and among the more well-



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to-do in poorer countries, but is a large-grained capital good for most peoplein poor countries. If, given the price of such a good and the wealth of asociety, a large number of individuals buy and use such medium-grainedlumpy goods, that society will have a large amount of excess capacity “outthere,” in the hands of individuals. Because these machines are put intoservice to serve the needs of individuals, their excess capacity is available forthese individuals to use as they wish—for their own uses, to sell to others,or to share with others. It is the combination of the fact that these machinesare available at prices (relative to wealth) that allow users to put them inservice based purely on their value for personal use, and the fact that theyhave enough capacity to facilitate additionally the action and fulfill the needsof others, that makes them “shareable.” If they were so expensive that theycould only be bought by pooling the value of a number of users, they wouldbe placed in service either using some market mechanism to aggregate thatdemand, or through formal arrangements of common ownership by all thosewhose demand was combined to invest in purchasing the resource. If theywere so finely grained in their capacity that there would be nothing left toshare, again, sharing would be harder to sustain. The fact that they are bothrelatively inexpensive and have excess capacity makes them the basis for astable model of individual ownership of resources combined with social shar-ing of that excess capacity.

Because social sharing requires less precise specification of the transactionaldetails with each transaction, it has a distinct advantage over market-basedmechanisms for reallocating the excess capacity of shareable goods, particu-larly when they have small quanta of excess capacity relative to the amountnecessary to achieve the desired outcome. For example, imagine that thereare one thousand people in a population of computer owners. Imagine thateach computer is capable of performing one hundred computations per sec-ond, and that each computer owner needs to perform about eighty opera-tions per second. Every owner, in other words, has twenty operations ofexcess capacity every second. Now imagine that the marginal transactioncosts of arranging a sale of these twenty operations—exchanging PayPal (awidely used low-cost Internet-based payment system) account information,insurance against nonpayment, specific statement of how much time thecomputer can be used, and so forth—cost ten cents more than the marginaltransaction costs of sharing the excess capacity socially. John wants to rendera photograph in one second, which takes two hundred operations per sec-ond. Robert wants to model the folding of proteins, which takes ten thou-



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sand operations per second. For John, a sharing system would save fiftycents—assuming he can use his own computer for half of the two hundredoperations he needs. He needs to transact with five other users to “rent”their excess capacity of twenty operations each. Robert, on the other hand,needs to transact with five hundred individual owners in order to use theirexcess capacity, and for him, using a sharing system is fifty dollars cheaper.The point of the illustration is simple. The cost advantage of sharing as atransactional framework relative to the price system increases linearly withthe number of transactions necessary to acquire the level of resources nec-essary for an operation. If excess capacity in a society is very widely distrib-uted in small dollops, and for any given use of the excess capacity it isnecessary to pool the excess capacity of thousands or even millions of in-dividual users, the transaction-cost advantages of the sharing system becomesignificant.

The transaction-cost effect is reinforced by the motivation crowding outtheory. When many discrete chunks of excess capacity need to be pooled,each distinct contributor cannot be paid a very large amount. Motivationcrowding out theory would predict that when the monetary rewards to anactivity are low, the negative effect of crowding out the social-psychologicalmotivation will weigh more heavily than any increased incentive that is cre-ated by the promise of a small payment to transfer one’s excess capacity. Theupshot is that when the technological state results in excess capacity of phys-ical capital being widely distributed in small dollops, social sharing can out-perform secondary markets as a mechanism for harnessing that excess ca-pacity. This is so because of both transaction costs and motivation. Fewerowners will be willing to sell their excess capacity cheaply than to give itaway for free in the right social context and the transaction costs of sellingwill be higher than those of sharing.

From an efficiency perspective, then, there are clear reasons to think thatsocial production systems—both peer production of information, knowl-edge, and culture and sharing of material resources—can be more efficientthan market-based systems to motivate and allocate both human creativeeffort and the excess computation, storage, and communications capacitythat typify the networked information economy. That does not mean thatall of us will move out of market-based productive relationships all of thetime. It does mean that alongside our market-based behaviors we generatesubstantial amounts of human creativity and mechanical capacity. The trans-action costs of clearing those resources through the price system or through



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firms are substantial, and considerably larger for the marginal transactionthan clearing them through social-sharing mechanisms as a transactionalframework. With the right institutional framework and peer-review or quality-control mechanisms, and with well-modularized organization of work, socialsharing is likely to identify the best person available for a job and make itfeasible for that person to work on that job using freely available informationinputs. Similarly, social transactional frameworks are likely to be substantiallyless expensive than market transactions for pooling large numbers of discrete,small increments of the excess capacity of the personal computer processors,hard drives, and network connections that make up the physical capital baseof the networked information economy. In both cases, given that much ofwhat is shared is excess capacity from the perspective of the contributors,available to them after they have fulfilled some threshold level of theirmarket-based consumption requirements, social-sharing systems are likely totap in to social psychological motivations that money cannot tap, and, in-deed, that the presence of money in a transactional framework could nullify.Because of these effects, social sharing and collaboration can provide notonly a sustainable alternative to market-based and firm-based models of pro-visioning information, knowledge, culture, and communications, but also analternative that more efficiently utilizes the human and physical capital baseof the networked information economy. A society whose institutional ecol-ogy permitted social production to thrive would be more productive underthese conditions than a society that optimized its institutional environmentsolely for market- and firm-based production, ignoring its detrimental effectsto social production.

THE EMERGENCE OF SOCIAL PRODUCTION IN

THE DIGITALLY NETWORKED ENVIRONMENT

There is a curious congruence between the anthropologists of the gift andmainstream economists today. Both treat the gift literature as being aboutthe periphery, about societies starkly different from modern capitalist soci-eties. As Godelier puts it, “What a contrast between these types of society,these social and mental universes, and today’s capitalist society where themajority of social relations are impersonal (involving the individual as citizenand the state, for instance), and where the exchange of things and servicesis conducted for the most part in an anonymous marketplace, leaving littleroom for an economy and moral code based on gift-giving.”10 And yet,



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sharing is everywhere around us in the advanced economies. Since the 1980s,we have seen an increasing focus, in a number of literatures, on productionpractices that rely heavily on social rather than price-based or governmentalpolicies. These include, initially, the literature on social norms and socialcapital, or trust.11 Both these lines of literature, however, are statements ofthe institutional role of social mechanisms for enabling market exchange andproduction. More direct observations of social production and exchange sys-tems are provided by the literature on social provisioning of public goods—like social norm enforcement as a dimension of policing criminality, and theliterature on common property regimes.12 The former are limited by theirfocus on public goods provisioning. The latter are usually limited by theirfocus on discretely identifiable types of resources—common pool resources—that must be managed as among a group of claimants while retaining aproprietary outer boundary toward nonmembers. The focus of those whostudy these phenomena is usually on relatively small and tightly knit com-munities, with clear boundaries between members and nonmembers.13

These lines of literature point to an emerging understanding of socialproduction and exchange as an alternative to markets and firms. Social pro-duction is not limited to public goods, to exotic, out-of-the-way places likesurviving medieval Spanish irrigation regions or the shores of Maine’s lobsterfishing grounds, or even to the ubiquitous phenomenon of the household.As SETI@home and Slashdot suggest, it is not necessarily limited to stablecommunities of individuals who interact often and know each other, or whoexpect to continue to interact personally. Social production of goods andservices, both public and private, is ubiquitous, though unnoticed. It some-times substitutes for, and sometimes complements, market and state pro-duction everywhere. It is, to be fanciful, the dark matter of our economicproduction universe.

Consider the way in which the following sentences are intuitively familiar,yet as a practical matter, describe the provisioning of goods or services thathave well-defined NAICS categories (the categories used by the EconomicCensus to categorize economic sectors) whose provisioning through the mar-kets is accounted for in the Economic Census, but that are commonly pro-visioned in a form consistent with the definition of sharing—on a radicallydistributed model, without price or command.

NAICS 624410624410 [Babysitting services, child day care]“John, could you pick up Bobby today when you take Lauren to soccer? I have

a conference call I have to make.”



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“Are you doing homework with Zoe today, or shall I?”

NAICS 484210 [Trucking used household, office, or institutional furniture andequipment]

“Jane, could you lend a hand moving this table to the dining room?”“Here, let me hold the elevator door for you, this looks heavy.”

NAICS 484122 [Trucking, general freight, long-distance, less-than-truckload]“Jack, do you mind if I load my box of books in your trunk so you can drop

it off at my brother’s on your way to Boston?”

NAICS 514110 [Traffic reporting services]“Oh, don’t take I-95, it’s got horrible construction traffic to exit 39.”

NAICS 711510 [Newspaper columnists, independent (freelance)]“I don’t know about Kerry, he doesn’t move me, I think he should be more

aggressive in criticizing Bush on Iraq.”

NAICS 621610 [Home health-care services]“Can you please get me my medicine? I’m too wiped to get up.”“Would you like a cup of tea?”

NAICS 561591 [Tourist information bureaus]“Excuse me, how do I get to Carnegie Hall?”

NAICS 561321 [Temporary help services]“I’ve got a real crunch on the farm, can you come over on Saturday and lend

a hand?”“This is crazy, I’ve got to get this document out tonight, could you lend me a

hand with proofing and pulling it all together tonight?”

NAICS 71 [Arts, entertainment, and recreation]“Did you hear the one about the Buddhist monk, the Rabbi, and the Catholic

priest . . . ?”“Roger, bring out your guitar. . . .”“Anybody up for a game of . . . ?”

The litany of examples generalizes through a combination of four dimen-sions that require an expansion from the current focus of the literaturesrelated to social production. First, they relate to production of goods andservices, not only of norms or rules. Social relations provide the very mo-tivations for, and information relating to, production and exchange, not onlythe institutional framework for organizing action, which itself is motivated,informed, and organized by markets or managerial commands. Second, theyrelate to all kinds of goods, not only public goods. In particular, the para-digm cases of free software development and distributed computing involvelabor and shareable goods—each plainly utilizing private goods as inputs,



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and, in the case of distributed computing, producing private goods as out-puts. Third, at least some of them relate not only to relations of productionwithin well-defined communities of individuals who have repeated interac-tions, but extend to cover baseline standards of human decency. These enablestrangers to ask one another for the time or for directions, enable drivers tocede the road to each other, and enable strangers to collaborate on softwareprojects, on coauthoring an online encyclopedia, or on running simulationsof how proteins fold. Fourth, they may either complement or substitute formarket and state production systems, depending on the social constructionof mixed provisioning. It is hard to measure the weight that social andsharing-based production has in the economy. Our intuitions about capillarysystems would suggest that the total volume of boxes or books moved orlifted, instructions given, news relayed, and meals prepared by family, friends,neighbors, and minimally decent strangers would be very high relative tothe amount of substitutable activity carried on through market exchanges orstate provisioning.

Why do we, despite the ubiquity of social production, generally ignore itas an economic phenomenon, and why might we now reconsider its im-portance? A threshold requirement for social sharing to be a modality ofeconomic production, as opposed to one purely of social reproduction, isthat sharing-based action be effective. Efficacy of individual action dependson the physical capital requirements for action to become materially effective,which, in turn, depend on technology. Effective action may have very lowphysical capital requirements, so that every individual has, by natural capac-ity, “the physical capital” necessary for action. Social production or sharingcan then be ubiquitous (though in practice, it may not). Vocal cords toparticipate in a sing-along or muscles to lift a box are obvious examples.When the capital requirements are nontrivial, but the capital good is widelydistributed and available, sharing can similarly be ubiquitous and effective.This is true both when the shared resource or good is the capacity of thecapital good itself—as in the case of shareable goods—and when somewidely distributed human capacity is made effective through the use of thewidely distributed capital goods—as in the case of human creativity, judg-ment, experience, and labor shared in online peer-production processes—inwhich participants contribute using the widespread availability of connectedcomputers. When use of larger-scale physical capital goods is a thresholdrequirement of effective action, we should not expect to see widespreadreliance on decentralized sharing as a standard modality of production. In-



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dustrial mass-manufacture of automobiles, steel, or plastic toys, for example,is not the sort of thing that is likely to be produced on a social-sharing basis,because of the capital constraints. This is not to say that even for large-scalecapital projects, like irrigation systems and dams, social production systemscannot step into the breach. We have those core examples in the common-property regime literature, and we have worker-owned firms as examples ofmixed systems. However, those systems tend to replicate the characteristicsof firm, state, or market production—using various combinations of quotas,scrip systems, formal policing by “professional” officers, or managementwithin worker-owned firms. By comparison, the “common property” ar-rangements described among lobster gangs of Maine or fishing groups inJapan, where capital requirements are much lower, tend to be more social-relations-based systems, with less formalized or crisp measurement of con-tributions to, and calls on, the production system.

To say that sharing is technology dependent is not to deny that it is aubiquitous human phenomenon. Sharing is so deeply engrained in so manyof our cultures that it would be difficult to argue that with the “right” (orperhaps “wrong”) technological contingencies, it would simply disappear. Myclaim, however, is narrower. It is that the relative economic role of sharingchanges with technology. There are technological conditions that requiremore or less capital, in larger or smaller packets, for effective provisioningof goods, services, and resources the people value. As these conditionschange, the relative scope for social-sharing practices to play a role in pro-duction changes. When goods, services, and resources are widely dispersed,their owners can choose to engage with each other through social sharinginstead of through markets or a formal, state-based relationship, becauseindividuals have available to them the resources necessary to engage in suchbehavior without recourse to capital markets or the taxation power of thestate. If technological changes make the resources necessary for effective ac-tion rare or expensive, individuals may wish to interact in social relations,but they can now only do so ineffectively, or in different fields of endeavorthat do not similarly require high capitalization. Large-packet, expensivephysical capital draws the behavior into one or the other of the modalitiesof production that can collect the necessary financial capital—through mar-kets or taxation. Nothing, however, prevents change from happening in theopposite direction. Goods, services, and resources that, in the industrial stageof the information economy required large-scale, concentrated capital in-vestment to provision, are now subject to a changing technological environ-



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ment that can make sharing a better way of achieving the same results thancan states, markets, or their hybrid, regulated industries.

Because of changes in the technology of the industrial base of the mostadvanced economies, social sharing and exchange is becoming a commonmodality of production at their very core—in the information, culture, ed-ucation, computation, and communications sectors. Free software, distrib-uted computing, ad hoc mesh wireless networks, and other forms of peerproduction offer clear examples of large-scale, measurably effective sharingpractices. The highly distributed capital structure of contemporary com-munications and computation systems is largely responsible for this increasedsalience of social sharing as a modality of economic production in that en-vironment. By lowering the capital costs required for effective individualaction, these technologies have allowed various provisioning problems to bestructured in forms amenable to decentralized production based on socialrelations, rather than through markets or hierarchies.

My claim is not, of course, that we live in a unique moment of humanisticsharing. It is, rather, that our own moment in history suggests a more generalobservation. The technological state of a society, in particular the extent towhich individual agents can engage in efficacious production activities withmaterial resources under their individual control, affects the opportunitiesfor, and hence the comparative prevalence and salience of, social, market—both price-based and managerial—and state production modalities. The cap-ital cost of effective economic action in the industrial economy shuntedsharing to its economic peripheries—to households in the advanced econ-omies, and to the global economic peripheries that have been the subject ofthe anthropology of gift or the common-property regime literatures. Theemerging restructuring of capital investment in digital networks—in partic-ular, the phenomenon of user-capitalized computation and communicationscapabilities—are at least partly reversing that effect. Technology does notdetermine the level of sharing. It does, however, set threshold constraints onthe effective domain of sharing as a modality of economic production.Within the domain of the practically feasible, the actual level of sharingpractices will be culturally driven and cross-culturally diverse.

Most practices of production—social or market-based—are already em-bedded in a given technological context. They present no visible “problem”to solve or policy choice to make. We do not need to be focused consciouslyon improving the conditions under which friends lend a hand to each otherto move boxes, make dinner, or take kids to school. We feel no need to



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reconsider the appropriateness of market-based firms as the primary modalityfor the production of automobiles. However, in moments where a field ofaction is undergoing a technological transition that changes the opportunitiesfor sharing as a modality of production, understanding that sharing is amodality of production becomes more important, as does understandinghow it functions as such. This is so, as we are seeing today, when priortechnologies have already set up market- or state-based production systemsthat have the law and policy-making systems already designed to fit theirrequirements. While the prior arrangement may have been the most efficient,or even may have been absolutely necessary for the incumbent productionsystem, its extension under new technological conditions may undermine,rather than improve, the capacity of a society to produce and provision thegoods, resources, or capacities that are the object of policy analysis. This is,as I discuss in part III, true of wireless communications regulation, or “spec-trum management,” as it is usually called; of the regulation of information,knowledge, and cultural production, or “intellectual property,” as it is usuallynow called; and it may be true of policies for computation and wired com-munications networks, as distributed computing and the emerging peer-to-peer architectures suggest.

THE INTERFACE OF SOCIAL PRODUCTION AND

MARKET-BASED BUSINESSES

The rise of social production does not entail a decline in market-based pro-duction. Social production first and foremost harnesses impulses, time, andresources that, in the industrial information economy, would have beenwasted or used purely for consumption. Its immediate effect is thereforelikely to increase overall productivity in the sectors where it is effective. Butthat does not mean that its effect on market-based enterprises is neutral. Anewly effective form of social behavior, coupled with a cultural shift in tastesas well as the development of new technological and social solution spacesto problems that were once solved through market-based firms, exercises asignificant force on the shape and conditions of market action. Understand-ing the threats that these developments pose to some incumbents explainsmuch of the political economy of law in this area, which will occupy chapter11. At the simplest level, social production in general and peer productionin particular present new sources of competition to incumbents that produceinformation goods for which there are now socially produced substitutes.



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Open source software development, for example, first received mainstreammedia attention in 1998 due to publication of a leaked internal memorandumfrom Microsoft, which came to be known as The Halloween Memo. In it,a Microsoft strategist identified the open source methodology as the onemajor potential threat to the company’s dominance over the desktop. As wehave seen since, definitively in the Web server market and gradually in seg-ments of the operating system market, this prediction proved prescient. Sim-ilarly, Wikipedia now presents a source of competition to online encyclo-pedias like Columbia, Grolier, or Encarta, and may well come to be seen asan adequate substitute for Britannica as well. Most publicly visible, peer-to-peer file sharing networks have come to compete with the recording industryas an alternative music distribution system, to the point where the long-term existence of that industry is in question. Some scholars like WilliamFisher, and artists like Jenny Toomey and participants in the Future of MusicCoalition, are already looking for alternative ways of securing for artists aliving from the music they make.

The competitive threat from social production, however, is merely a sur-face phenomenon. Businesses often face competition or its potential, andthis is a new source, with new economics, which may or may not put someof the incumbents out of business. But there is nothing new about entrantswith new business models putting slow incumbents out of business. Morebasic is the change in opportunity spaces, the relationships of firms to users,and, indeed, the very nature of the boundary of the firm that those businessesthat are already adapting to the presence and predicted persistence of socialproduction are exhibiting. Understanding the opportunities social produc-tion presents for businesses begins to outline how a stable social productionsystem can coexist and develop a mutually reinforcing relationship withmarket-based organizations that adapt to and adopt, instead of fight, them.

Consider the example I presented in chapter 2 of IBM’s relationship tothe free and open source software development community. IBM, as I ex-plained there, has shown more than $2 billion a year in “Linux-related rev-enues.” Prior to IBM’s commitment to adapting to what the firm sees asthe inevitability of free and open source software, the company either de-veloped in house or bought from external vendors the software it needed aspart of its hardware business, on the one hand, and its software services—customization, enterprise solutions, and so forth—on the other hand. Ineach case, the software development follows a well-recognized supply chainmodel. Through either an employment contract or a supply contract the



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company secures a legal right to require either an employee or a vendor todeliver a given output at a given time. In reliance on that notion of a supplychain that is fixed or determined by a contract, the company turns aroundand promises to its clients that it will deliver the integrated product or servicethat includes the contracted-for component. With free or open source soft-ware, that relationship changes. IBM is effectively relying for its inputs ona loosely defined cloud of people who are engaged in productive social re-lations. It is making the judgment that the probability that a sufficientlygood product will emerge out of this cloud is high enough that it canundertake a contractual obligation to its clients, even though no one in thecloud is specifically contractually committed to it to produce the specificinputs the firm needs in the timeframe it needs it. This apparent shift froma contractually deterministic supply chain to a probabilistic supply chain isless dramatic, however, than it seems. Even when contracts are signed withemployees or suppliers, they merely provide a probability that the employeeor the supplier will in fact supply in time and at appropriate quality, giventhe difficulties of coordination and implementation. A broad literature inorganization theory has developed around the effort to map the variousstrategies of collaboration and control intended to improve the likelihoodthat the different components of the production process will deliver whatthey are supposed to: from early efforts at vertical integration, to relationalcontracting, pragmatic collaboration, or Toyota’s fabled flexible specializa-tion. The presence of a formalized enforceable contract, for outputs in whichthe supplier can claim and transfer a property right, may change the prob-ability of the desired outcome, but not the fact that in entering its owncontract with its clients, the company is making a prediction about therequired availability of necessary inputs in time. When the company turnsinstead to the cloud of social production for its inputs, it is making a similarprediction. And, as with more engaged forms of relational contracting, prag-matic collaborations, or other models of iterated relations with coproducers,the company may engage with the social process in order to improve theprobability that the required inputs will in fact be produced in time. In thecase of companies like IBM or Red Hat, this means, at least partly, payingemployees to participate in the open source development projects. But man-aging this relationship is tricky. The firms must do so without seeking to,or even seeming to seek to, take over the project; for to take over the projectin order to steer it more “predictably” toward the firm’s needs is to kill thegoose that lays the golden eggs. For IBM and more recently Nokia, sup-



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porting the social processes on which they rely has also meant contributinghundreds of patents to the Free Software Foundation, or openly licensingthem to the software development community, so as to extend the protectiveumbrella created by these patents against suits by competitors. As the com-panies that adopt this strategic reorientation become more integrated intothe peer-production process itself, the boundary of the firm becomes moreporous. Participation in the discussions and governance of open source de-velopment projects creates new ambiguity as to where, in relation to whatis “inside” and “outside” of the firm boundary, the social process is. In somecases, a firm may begin to provide utilities or platforms for the users whoseoutputs it then uses in its own products. The Open Source DevelopmentGroup (OSDG), for example, provides platforms for Slashdot and Source-Forge. In these cases, the notion that there are discrete “suppliers” and “con-sumers,” and that each of these is clearly demarcated from the other andoutside of the set of stable relations that form the inside of the firm becomessomewhat attenuated.

As firms have begun to experience these newly ambiguous relationshipswith individuals and social groups, they have come to wrestle with questionsof leadership and coexistence. Businesses like IBM, or eBay, which uses peerproduction as a critical component of its business ecology—the peer re-viewed system of creating trustworthiness, without which person-to-persontransactions among individual strangers at a distance would be impossible—have to structure their relationship to the peer-production processes thatthey co-exist with in a helpful and non-threatening way. Sometimes, as wesaw in the case of IBM’s contributions to the social process, this may meansupport without attempting to assume “leadership” of the project. Some-times, as when peer production is integrated more directly into what isotherwise a commercially created and owned platform—as in the case ofeBay—the relationship is more like that of a peer-production leader than ofa commercial actor. Here, the critical and difficult point for business man-agers to accept is that bringing the peer-production community into thenewly semi-porous boundary of the firm—taking those who used to becustomers and turning them into participants in a process of coproduction—changes the relationship of the firm’s managers and its users. Linden Labs,which runs Second Life, learned this in the context of the tax revolt describedin chapter 3. Users cannot be ordered around like employees. Nor can theybe simply advertised-to and manipulated, or even passively surveyed, likecustomers. To do that would be to lose the creative and generative social



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character that makes integration of peer production into a commercial busi-ness model so valuable for those businesses that adopt it. Instead, managersmust be able to identify patterns that emerge in the community and inspiretrust that they are correctly judging the patterns that are valuable from theperspective of the users, not only the enterprise, so that the users in factcoalesce around and extend these patterns.

The other quite basic change wrought by the emergence of social pro-duction, from the perspective of businesses, is a change in taste. Active usersrequire and value new and different things than passive consumers did. Theindustrial information economy specialized in producing finished goods, likemovies or music, to be consumed passively, and well-behaved appliances,like televisions, whose use was fully specified at the factory door. The emerg-ing businesses of the networked information economy are focusing on serv-ing the demand of active users for platforms and tools that are much moreloosely designed, late-binding—that is, optimized only at the moment ofuse and not in advance—variable in their uses, and oriented toward provid-ing users with new, flexible platforms for relationships. Personal computers,camera phones, audio and video editing software, and similar utilities areexamples of tools whose value increases for users as they are enabled toexplore new ways to be creative and productively engaged with others. Inthe network, we are beginning to see business models emerge to allow peopleto come together, like MeetUp, and to share annotations of Web pages theyread, like del.icio.us, or photographs they took, like Flickr. Services likeBlogger and Technorati similarly provide platforms for the new social andcultural practices of personal journals, or the new modes of expression de-scribed in chapters 7 and 8.

The overarching point is that social production is reshaping the marketconditions under which businesses operate. To some of the incumbents ofthe industrial information economy, the pressure from social production isexperienced as pure threat. It is the clash between these incumbents and thenew practices that was most widely reported in the media in the first fiveyears of the twenty-first century, and that has driven much of policy making,legislation, and litigation in this area. But the much more fundamental effecton the business environment is that social production is changing the rela-tionship of firms to individuals outside of them, and through this changingthe strategies that firms internally are exploring. It is creating new sourcesof inputs, and new tastes and opportunities for outputs. Consumers arechanging into users—more active and productive than the consumers of the



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industrial information economy. The change is reshaping the relationshipsnecessary for business success, requiring closer integration of users into theprocess of production, both in inputs and outputs. It requires different lead-ership talents and foci. By the time of this writing, in 2005, these newopportunities and adaptations have begun to be seized upon as strategicadvantages by some of the most successful companies working around theInternet and information technology, and increasingly now around infor-mation and cultural production more generally. Eric von Hippel’s work hasshown how the model of user innovation has been integrated into the busi-ness model of innovative firms even in sectors far removed from either thenetwork or from information production—like designing kite-surfing equip-ment or mountain bikes. As businesses begin to do this, the platforms andtools for collaboration improve, the opportunities and salience of social pro-duction increases, and the political economy begins to shift. And as thesefirms and social processes coevolve, the dynamic accommodation they aredeveloping provides us with an image of what the future stable interfacebetween market-based businesses and the newly salient social production islikely to look like.

Name /yal05/27282_u13notes 01/27/06 10:28AM Plate # 0-Composite pg 478 # 4

478 Notes to Pages 88–93

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overview of the intellectual history of this debate and a contribution to the institu-tional design necessary to make space for this change, see Kevin Werbach, “Super-commons: Towards a Unified Theory of Wireless Communication,” Texas Law Review82 (2004): 863. The policy implications of computationally intensive radios using widebands were first raised by George Gilder in “The New Rule of the Wireless,” ForbesASAP, March 29, 1993, and Paul Baran, “Visions of the 21st Century Communica-tions: Is the Shortage of Radio Spectrum for Broadband Networks of the Future aSelf Made Problem?” (keynote talk transcript, 8th Annual Conference on Next Gen-eration Networks, Washington, DC, November 9, 1994). Both statements focused onthe potential abundance of spectrum, and how it renders “spectrum management”obsolete. Eli Noam was the first to point out that, even if one did not buy the ideathat computationally intensive radios eliminated scarcity, they still rendered spectrumproperty rights obsolete, and enabled instead a fluid, dynamic, real-time market inspectrum clearance rights. See Eli Noam, “Taking the Next Step Beyond SpectrumAuctions: Open Spectrum Access,” Institute of Electrical and Electronics Engineers Com-munications Magazine 33, no. 12 (1995): 66–73; later elaborated in Eli Noam, “Spec-trum Auction: Yesterday’s Heresy, Today’s Orthodoxy, Tomorrow’s Anachronism.Taking the Next Step to Open Spectrum Access,” Journal of Law and Economics 41(1998): 765, 778–780. The argument that equipment markets based on a spectrumcommons, or free access to frequencies, could replace the role planned for marketsin spectrum property rights with computationally intensive equipment and sophisti-cated network sharing protocols, and would likely be more efficient even assumingthat scarcity persists, was made in Benkler, “Overcoming Agoraphobia.” LawrenceLessig, Code and Other Laws of Cyberspace (New York: Basic Books, 1999) andLawrence Lessig, The Future of Ideas: The Fate of the Commons in a Connected World(New York: Random House, 2001) developed a rationale based on the innovationdynamic in support of the economic value of open wireless networks. David Reed,“Comments for FCC Spectrum Task Force on Spectrum Policy,” filed with the Fed-eral Communications Commission July 10, 2002, crystallized the technical underpin-nings and limitations of the idea that spectrum can be regarded as property.

11. See Benkler, “Some Economics,” 44–47. The term “cooperation gain” was developedby Reed to describe a somewhat broader concept than “diversity gain” is in multiuserinformation theory.

12. Spectrum Policy Task Force Report to the Commission (Federal Communications Com-mission, Washington, DC, 2002); Michael K. Powell, “Broadband Migration III: NewDirections in Wireless Policy” (Remarks at the Silicon Flatiron TelecommunicationsProgram, University of Colorado at Boulder, October 30, 2002).

CHAPTER 4. The Economics of Social Production

1. Richard M. Titmuss, The Gift Relationship: From Human Blood to Social Policy (NewYork: Vintage Books, 1971), 94.

2. Kenneth J. Arrow, “Gifts and Exchanges,” Philosophy & Public Affairs 1 (1972): 343.


Notes to Pages 94–116 479

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3. Bruno S. Frey, Not Just for Money: An Economic Theory of Personal Motivation (Brook-field, VT: Edward Elgar, 1997); Bruno S. Frey, Inspiring Economics: Human Motivationin Political Economy (Northampton, MA: Edward Elgar, 2001), 52–72. An excellentsurvey of this literature is Bruno S. Frey and Reto Jegen, “Motivation CrowdingTheory,” Journal of Economic Surveys 15, no. 5 (2001): 589. For a crystallization of theunderlying psychological theory, see Edward L. Deci and Richard M. Ryan, IntrinsicMotivation and Self-Determination in Human Behavior (New York: Plenum, 1985).

4. Roland Benabou and Jean Tirole, “Self-Confidence and Social Interactions” (workingpaper no. 7585, National Bureau of Economic Research, Cambridge, MA, March2000).

5. Truman F. Bewley, “A Depressed Labor Market as Explained by Participants,” Amer-ican Economic Review (Papers and Proceedings) 85 (1995): 250, provides survey dataabout managers’ beliefs about the effects of incentive contracts; Margit Osterloh andBruno S. Frey, “Motivation, Knowledge Transfer, and Organizational Form,” Orga-nization Science 11 (2000): 538, provides evidence that employees with tacit knowledgecommunicate it to coworkers more efficiently without extrinsic motivations, with theappropriate social motivations, than when money is offered for “teaching” theirknowledge; Bruno S. Frey and Felix Oberholzer-Gee, “The Cost of Price Incentives:An Empirical Analysis of Motivation Crowding-Out,” American Economic Review 87(1997): 746; and Howard Kunreuther and Douslar Easterling, “Are Risk-BenefitTradeoffs Possible in Siting Hazardous Facilities?” American Economic Review (Papersand Proceedings) 80 (1990): 252–286, describe empirical studies where communitiesbecame less willing to accept undesirable public facilities (Not in My Back Yard orNIMBY) when offered compensation, relative to when the arguments made werepolicy based on the common weal; Uri Gneezy and Aldo Rustichini, “A Fine Is aPrice,” Journal of Legal Studies 29 (2000): 1, found that introducing a fine for tardypickup of kindergarten kids increased, rather than decreased, the tardiness of parents,and once the sense of social obligation was lost to the sense that it was “merely” atransaction, the parents continued to be late at pickup, even after the fine was re-moved.

6. James S. Coleman, “Social Capital in the Creation of Human Capital,” AmericanJournal of Sociology 94, supplement (1988): S95, S108. For important early contribu-tions to this literature, see Mark Granovetter, “The Strength of Weak Ties,” AmericanJournal of Sociology 78 (1973): 1360; Mark Granovetter, Getting a Job: A Study ofContacts and Careers (Cambridge, MA: Harvard University Press, 1974); Yoram Ben-Porath, “The F-Connection: Families, Friends and Firms and the Organization ofExchange,” Population and Development Review 6 (1980): 1.

7. Nan Lin, Social Capital: A Theory of Social Structure and Action (New York: Cam-bridge University Press, 2001), 150–151.

8. Steve Weber, The Success of Open Source (Cambridge, MA: Harvard University Press,2004).

9. Maurice Godelier, The Enigma of the Gift, trans. Nora Scott (Chicago: University ofChicago Press, 1999), 5.

10. Godelier, The Enigma, 106.


480 Notes to Pages 117–153

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11. In the legal literature, Robert Ellickson, Order Without Law: How Neighbors SettleDisputes (Cambridge, MA: Harvard University Press, 1991), is the locus classicus forshowing how social norms can substitute for law. For a bibliography of the socialnorms literature outside of law, see Richard H. McAdams, “The Origin, Develop-ment, and Regulation of Norms,” Michigan Law Review 96 (1997): 338n1, 339n2. Earlycontributions were: Edna Ullman-Margalit, The Emergence of Norms (Oxford: Clar-endon Press, 1977); James Coleman, “Norms as Social Capital,” in Economic Impe-rialism: The Economic Approach Applied Outside the Field of Economics, ed. Peter Bern-holz and Gerard Radnitsky (New York: Paragon House Publishers, 1987), 133–155;Sally E. Merry, “Rethinking Gossip and Scandal,” in Toward a Theory of Social Con-trol, Fundamentals, ed. Donald Black (New York: Academic Press, 1984).

12. On policing, see Robert C. Ellickson, “Controlling Chronic Misconduct in CitySpaces: Of Panhandlers, Skid Rows, and Public-Space Zoning,” Yale Law Journal 105(1996): 1165, 1194–1202; and Dan M. Kahan, “Between Economics and Sociology: TheNew Path of Deterrence,” Michigan Law Review 95 (1997): 2477.

13. An early and broad claim in the name of commons in resources for communicationand transportation, as well as human community building—like roads, canals, orsocial-gathering places—is Carol Rose, “The Comedy of the Commons: Custom,Commerce, and Inherently Public Property,” University Chicago Law Review 53 (1986):711. Condensing around the work of Elinor Ostrom, a more narrowly defined liter-ature developed over the course of the 1990s: Elinor Ostrom, Governing the Commons:The Evolution of Institutions for Collective Action (New York: Cambridge UniversityPress, 1990). Another seminal study was James M. Acheson, The Lobster Gangs ofMaine (New Hampshire: University Press of New England, 1988). A brief intellectualhistory of the study of common resource pools and common property regimes canbe found in Charlotte Hess and Elinor Ostrom, “Ideas, Artifacts, Facilities, and Con-tent: Information as a Common-Pool Resource,” Law & Contemporary Problems 66(2003): 111.

CHAPTER 5. Individual Freedom: Autonomy, Information, and Law

1. Robert Post, “Meiklejohn’s Mistake: Individual Autonomy and the Reform of PublicDiscourse,” University of Colorado Law Review 64 (1993): 1109, 1130–1132.

2. This conception of property was first introduced and developed systematically by Rob-ert Lee Hale in the 1920s and 1930s, and was more recently integrated with contem-porary postmodern critiques of power by Duncan Kennedy, Sexy Dressing Etc.: Essayson the Power and Politics of Cultural Identity (Cambridge, MA: Harvard UniversityPress, 1993).

3. White Paper, “Controlling Your Network, A Must for Cable Operators” (1999), http://www.cptech.org/ecom/openaccess/cisco1.html.

4. Data are all based on FCC Report on High Speed Services, Appendix to Fourth 706Report NOI (Washington, DC: Federal Communications Commission, December2003).

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